When Josh Madell co-founded Other Music 12 years ago, the goal was to sell music that then-major retailers like Tower Records didn't carry. In fact, Other Music opened its doors across the street from Tower Records' East Village store in New York City. "A lot of big music fans would come and hit them, and maybe hit us, too," says Madell, 37.

Today, Other Music's 12 employees only see where Tower Records' store used to be. Tower Records, which declared bankruptcy in 2004, is just one high-profile casualty in an industry struggling with downloading, file sharing and the growing dominance of iTunes. As of September 2007, industrywide album sales for the year had declined 14 percent compared with the same period last year, according to Nielsen SoundScan. Revolutionary times require revolutionary tactics, so in April, Other Music launched an online music store at digital.othermusic.com, where visitors can sign up for e-newsletters, listen to music clips and download songs. "If there's going to be an Other Music in five years," Madell says, "we need to change."

If you're in a troubled or dying industry, how do you spot the warning signs before you fall? Entrepreneurs often miss market disruptions once they're in business, and today, disruptions are everywhere. "There is no safe industry," says Jeff Cornwall, director of the Center for Entrepreneurship at Belmont University. "We can't assume we're going to find a safe little niche to operate in."

Lagging sales are an obvious sign of impending doom, but there are more subtle indicators. For example, a competitor enters your space with a lower-cost model that you can't match, or a competitor democratizes your niche with a similar but simpler product aimed at customers you aren't targeting. "That's a leading indicator that something's going to happen to your business," says Scott Anthony, president of Innosight, an innovation consulting group. Instead of fighting back, look for new opportunities to grow. "It's far better to reinvent and build anew than face systematic decline," he says.

Eric Levin, founder of Criminal Records, an eight-employee Atlanta record store, is trying a different strategy to stay afloat. Two years ago, Levin, 38, purchased Aurora Coffee, a local coffee shop with two locations--one right next door to a Criminal Records store. Levin plans to tear down a wall separating the two businesses so customers can grab a coffee and check out the store's music, DVDs and comic books or catch an in-store performance. The other Aurora Coffee location is being turned into a coffee bar and used-vinyl annex with high-end turntables and a service that cleans vinyl albums and converts them to MP3 files. Criminal Records' gross CD sales already outpace last year's by 7 percent. "We're making it into a destination," says Levin, who projects Criminal Records and Aurora Coffee will generate $1.8 million in combined sales this year.

You, too, might have to change your tune in the face of industry changes. Other Music's annual sales exceed $1 million, and Madell hopes the company's online music store will be a hit with customers nationwide. "So far, so good," he says. "[But] we have a long way to go."

Chris Penttila

Chris Penttila is a Washington, DC-based freelance journalist who covers workplace issues on her blog, Workplacediva.blogspot.com.